Hassan al-Madhoun got a martyr's funeral – his body borne aloft on a stretcher, blood seeping through the bandages swathing his head as masked men fired machine-gun volleys into the air and crowds called for revenge.

Madhoun's life ended in Gaza's Jabaliya refugee camp on 1 November 2005 when the car he was travelling in with another Palestinian fighter was incinerated by a missile fired from an Israeli drone, its operators clearly aware of the identity of their target. Ten other people were wounded by the blast.

Behind the killing, leaked documents from the Palestine papers reveal, lay extensive clandestine collaboration between the Israel's army and secret service and the Palestinian Authority (PA) – uneasy allies in a shadowy war against common enemies –which has grown still closer in the years since.

Madhoun, 32, was a commander in the al-Aqsa Martyrs Brigades, part of Yasser Arafat's Fatah movement still loyal to the idea of armed struggle against Israel and refusing to accept the new Fatah and Palestinian Authority leadership's strategy of peaceful negotiations. Fawzi Abu al-Qarea, who died in the car with him, was a member of Fatah's bitter rival Hamas, the Islamic Resistance Movement.

Madhoun's whereabouts were known to Israel and to Rashid Abu Shabak, a Fatah veteran and head of the PLO's Preventive Security Organisation in the Gaza Strip, which Israel was preparing to evacuate unilaterally that August.

The defence minister alleged Madhoun was planning to attack one of the crossing points from Gaza into Israel. "He is not Hamas and you can kill him."

Yousef, apparently reluctant, replied laconically that "instructions" had been given, but then complained: "The environment is not easy, our capabilities are limited, and you haven't offered anything."

In the event, Madhoun died at the hands of Israeli forces in retaliation for a suicide bombing carried out by another Palestinian group, Islamic Jihad, which killed five Israelis in an open-air market in the northern town of Hadera on 26 October.

Israeli officials told the media that Madhoun was behind an incident in which a Gazan woman was arrested with an explosives belt as she tried to cross into Israel. She allegedly confessed to having been ordered to blow herself up at the Beersheba hospital where she was being treated. Madhoun had also, according to the army, played a role in a suicide bombing that claimed 10 victims in Ashdod in 2004.

"Israel had asked the PA several times to arrest him," Ha'aretz reported, "but in vain."

There is no evidence that the PA played a direct role in Madhoun's death, but the Mofaz-Yousef meeting and documents from the Palestine papers and WikiLeaks give a revealing insight into the intimate intelligence and security co-operation between the two sides.

The PA, formally committed to fighting violence against Israel, condemned Hamas, Islamic Jihad and other groups which mounted attacks, but also condemned Israel when it took military action against them. Saeb Erekat, the PLO chief negotiator, compared the Jabaliya drone strike to "pouring fuel on a fire".

The then foreign minister, Silvan Shalom, said of the "targeted assassination" policy: "It is not our goal to continue this activity. It can end immediately. It's all up to Abu Mazen [PA president, Mahmoud Abbas]. If Abu Mazen takes the strategic decision which he still refuses to take and acts against the infrastructure of terror ... [our activity] in Gaza will end the same day."

Nearly a year later, none of the main Palestinian security chiefs, including theveteran security strongman Mohammed Dahlan and Tawfiq Tirawi, head of general intelligence, were capable of providing leadership in Gaza and the West Bank, Israelis officials insisted. Diskin told the US security coordinator, Lieutenant General Keith Dayton, that Tirawi was "motivated, cruel and decisive, but has no standing in Gaza".

He said Dahlan's Preventative Security Organisation was under pressure from Hamas. "If he sees personal benefit in helping President Abbas, he will do so, because when he wants to, he knows how to pull the strings in Gaza."

Israel's approach was to urge the PA to arrest or kill wanted people but to act itself if it did not. In one meeting Amos Gilad, a senior Israeli defence official, named a suspect and said: "We gave the name to Dahlan and he refused to act. So we took him by force."

PA leaders repeatedly assured both the Israelis and Americans in private that they were committed to fighting terrorism, especially after the Hamas takeover of Gaza in the summer of 2007.

The shock of that defeat galvanised US-led efforts to overhaul the PA security apparatus. The aim was to simplify the chain of command to reduce the rivalries of competing agencies and improve performance.

By 2008, Israeli leaders were much more confident about co-operation from PA security. "In the West Bank," Israel's foreign minister, Tzipi Livni, remarked in March 2008, "the situation is more under control due to the fact that we are there ... and working together". Hazem Atallah, the PA police chief, boasted that newly trained National Security Force units had fired back when attacked in Qabatya, in the northern West Bank. "That is the way, they have to learn to respect the authority of the Palestinian security forces," he said. "I understand human rights, but this is not Switzerland." Amos Gilad responded: "I agree – freedom is not chaos."

Israel's chief of staff, General Gabi Ashkenazi, was said to be "no longer sceptical about the utility of co-operation with the PA on security matters".

In September 2009, Erekat, told a US official, David Hale: "We have had to kill Palestinians to establish one authority, one gun and the rule of law. We have even killed our own people to maintain order and the rule of law."

Earlier that year, it had reported privately to George Mitchell the extent of its crackdown on Hamas and others in the West Bank: 3,700 "members of armed groups" had been arrested: 4,700 individuals had been "summoned for questioning" and more than 1,100 weapons had been confiscated.